Energy Markets Testing Some Big Investors

Plummeting oil prices have beaten down the share prices of energy companies across the board, with some going out of business while others are struggling to hang on.

With valuations of E&P companies a mere fraction of what they were from a year or two ago, big-time energy investors see a massive opening to scoop up investment positions on the cheap. The CEO of Avenue Capital Group, an investment firm focused on distressed securities, sees a “once-in-a-lifetime opportunity” in distressed energy companies. Related: UK Banking On Diesel To Maintain Energy Supply

Marc Lasry spoke at the Reuters Global Investment Outlook Summit in New York on November 17, where he discussed his firm’s big gamble on energy right now. “Either you will get paid off, or you will become the new equity of these companies, but you need the luxury of time. You need to be able to wait two or three or four years,” he said. Lasry’s Avenue Capital Group manages $13.2 billion in capital, and he recently raised money for a specialty fund investing in energy. “The whole market is oversold, and we're trying to take advantage,” he said.

But so far, the bet has not paid off. It seems every time that investors think the sector is turning a corner, the downturn persists and even deepens. Lasry admitted that his fund has lost money in the first few months since it was set up. But he sees the industry turning around in the coming years. Related:Elon Musk's Hyperloop: Expensive, But Doable

For other investors, the payoff is too risky and too far away. A hedge fund in Chicago recently announced that it was giving up, having been burned by energy investments. Achievement Asset Management, one of Chicago’s biggest hedge funds, has decided to return money to investors rather than continue to gamble on speculative energy debt. The fund, setup by former UBS executive Joseph Scoby, had over $2 billion under management in mid-2014, but that dropped to around $900 million recently. The hedge fund had gobbled up distressed energy debt, but oil prices have failed to rebound, leaving the firm with an array of losing positions. “Obviously, we did not make money in credit,” Scoby told The Wall Street Journal. He blamed increasingly illiquid market, which made it difficult to move in and out of positions.